Transfer balance cap indexation

An individual’s transfer balance cap (‘TBC’) determines the maximum amount they can commit to a retirement phase interest in their super fund, such as an account-based pension, without being subject to penal taxation.

When the TBC concept was introduced with effect from 1 July 2017, it was initially $1,600,000.  It was increased by $100,000 as of 1 July 2021 to $1,700,000.

The TBC increases in $100,000 increments (or multiples of $100,000) in line with the Consumer Price Index (‘CPI’).

As a result of a substantial increase in the CPI, the TBC is due to increase on 1 July 2023 by $200,000.

Accordingly, an increase in the TBC is seen as a good thing, as it potentially means an individual can have more of their superannuation interest supporting a tax-free pension.

Individuals who start their first retirement phase income stream (otherwise known as a pension) on or after 1 July 2023 will have a TBC of $1.9 million.

From 1 July 2023 individuals will have a TBC between $1.6 million and $1.9 million.

An individual who already had a transfer balance account and at any time met or exceeded their personal TBC will not be entitled to indexation, and their personal TBC will remain the same.

For example, an individual who started their first retirement phase income stream, an account-based pension, on 1 January 2022 with a value of $1,700,000 at the time of commencement, would have fully utilised their then TBC of $1,700,000.

Such an individual, having already fully utilised their TBC, will not gain any benefit from the increase in the TBC due to indexation.

Where an individual has partially utilised their TBC before 1 July 2023, instead of benefiting from the full $200,000 increase in the TBC, they will have access to a proportional indexation of their TBC based on the unused cap percentage of their transfer balance account.

Editor: To see if this change will impact on how much you can have counted towards a pension interest in your super fund, please contact our office

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Warren Kruger

Specialist Tax Consultant - “Helping YOU Pay The Correct Tax And Not A Penny More”. My story starts on Christmas Eve, back in 1983 in South Africa.

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